2007 (4) TMI 308 - AT - Income Tax

Penalty u/s 158BFA(2) - Search And Seizure - penalty on the difference between the income returned and income assessed - HELD THAT - In our opinion penalty u/s 158BF A(2) is not mandatory. If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income the penalty is not attracted. In the case of Smt. Mala Dayanithi 2003 (11) TMI 280 - ITAT BANGALORE-C held that addition not based on material found during search or material in possession of AO but based on difference in valuation of property as disclosed by the assessee and as estimated by the DVO there was no concealment attracting penalty u/s 158BFA(2) of the IT Act 1961. In the instant case there was an estimate at the level of the AO as well as at the level of CIT(A) in respect of net profit rate. From the entire facts of the present case it would be clear that the income of the assessee was estimated and nothing has been brought on record by the AO that the assessee concealed any particulars of income. In our view unless any positive concealment is found no penalty is leviable on the addition made on estimate basis. While taking such a view we are fortified by the decision in the case of CIT vs. Prem Das. 1999 (5) TMI 10 - PUNJAB AND HARYANA HIGH COURT . In our opinion the penalty u/s 158BFA(2) is almost in pan materia to s. 271(1)(c) of the IT Act 1961 which relates to the concealment of income. The various Benches of the Tribunal have held that unless any positive concealment is found no penalty is leviable on the addition made on estimate basis. In the case of Hari Gopal Singh vs. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT held that where the assessment is made on estimate basis no penalty u/s. 271(1)(c) can be imposed. Thus we are of the considered view that no penalty u/s 158BFA(2) of the IT Act 1961 can be levied in this case. Accordingly we cancel the penalty levied by the AO and confirmed by CIT(A). In the result the appeal is allowed.

Summary

Issues:
Confirmation of penalty under Section 158BFA(2) of IT Act, 1961 based on undisclosed income during a search operation.

Analysis:
The appeal was filed against the penalty imposed under Section 158BFA(2) of the IT Act, 1961, related to the block period ending on 4th June, 2002. The assessee, an individual involved in trading sweet supari on a wholesale basis, had undisclosed income discovered during a search operation. The Assessing Officer (AO) estimated the net profit rate at 4.5%, resulting in an addition of Rs. 1,43,353 to the declared income of Rs. 12,50,000. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the net profit rate to 4% based on the view that certain expenses must have been incurred by the assessee. The Tribunal upheld the CIT(A)'s decision, making the 4% rate final.

The main contention was whether the penalty under Section 158BFA(2) was mandatory. The assessee argued that the penalty should not be imposed as there was no positive concealment, and the addition was made on an estimated basis without evidence of deliberate concealment. The assessee cited cases supporting the discretionary nature of the penalty provision.

The Tribunal considered the differing estimates by the AO and CIT(A) and emphasized that unless positive concealment was proven, no penalty should be levied on additions made on an estimate basis. Referring to relevant case law, the Tribunal highlighted that a mere difference in estimates did not constitute concealment. It was noted that the penalty provision under Section 158BFA(2) was akin to Section 271(1)(c) concerning concealment of income, and penalties should not be imposed without evidence of deliberate concealment.

Ultimately, the Tribunal concluded that in the absence of positive concealment and considering the nature of estimates made by the authorities, no penalty under Section 158BFA(2) should be levied. The appeal was allowed, and the penalty imposed by the AO and confirmed by the CIT(A) was canceled.